Home—Blog—How much the 50% tax rate is costing Britain
Feb 18, 2011, 09:13
Posted byMerryn Somerset Webb
Comments (30)
We've been wondering for ages how many rich people have really been driven out of the UK by the 50% marginal tax rate. We still don't really know. But there are a few hints here: British bankers head to Switzerland.
Turns out that according to the Swiss Federal Migration Office, 383 British citizens working in banking and financial services moved to Switzerland in 2010. That's up 28%. Look at a broader sector – banking insurance and consulting – and the number is 1379.
Up 29%. Matthaeus Den Otter of the Swiss Funds Association seems to think these numbers make sense. He told Channel 4 that here has been a steady influx of skilled workers. We estimate that some 20 to 25 UK hedge funds have set up offices in Switzerland over the past year, and the banks will have sent over some specialised staff as well."
And this isn't just about the fact that people like to live in Switzerland – non British migration to Switzerland in the same sectors is up only 14%. So how much is this costing us? If anyone can come up with exact numbers I'd be very grateful to get them, but let's assume for starters that total British banker migration to Switzerland is about 300 people. Then let's assume they have annual earnings of about £400,000 each (this is a very very low estimate given that those who move are likely to be founders of big funds and so on). An earned income of £400,000 would generate tax of £177,000 in 2010/11 (£27,000 more than the year before). So a total of £53,100,000.
But of course that is just the start of it. There are also the non British bankers who have decided to leave London for Switzerland – these numbers don't pick them up. There are the ones who have gone elsewhere – to Australia, to Hong Kong (one of my old fund manager friends packed his bags and headed there only a few months ago), to Shanghai and to the US.
And there is the fact that income tax is only one part of the tax the well off pay. There's the 20% VAT on all their luxury goods (now bought in Geneva or duty free in Bangkok airport), the stamp duty on their houses and their investments, the council tax on their top-banded homes, their capital gains tax and of course the fuel duty on the tanks of their four by fours.
Add it all up and we have got to be well into the many hundreds of millions. The political consensus is that the 50% rate has to stay. I've written here before that I think it is a very bad idea. These numbers, scant as they still are, make me even more sure.
Published in Blog More articles by Merryn Somerset Webb
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(18 February 2011, 10:32AM) Complain about this comment
Plenty of scope for argument over numbers here - just how many of the 383 and 1379 people have moved because of the 50% tax rate? The lowest estimate would be the difference between the incremental increase from Britain and the incremental increase from other countries, i.e. 28% minus 14% of the 383 and 1379.The key question you haven't addressed is how much extra tax has been raised by the 50% rate from those who pay it and haven't left Britain?
(18 February 2011, 10:53AM) Complain about this comment
Phil, about £2bn. The Government spends about £580bn annually so it's a tiny drop in the ocean even if you believe the ( Previous Labour Government ) treasury. Why is 51% ( don't forget the NI ) so much worse than 41%, it just is, the point at which the Government feels it's entitled to more than half you wage is a big psychological hit. Who cares anyway? There are only a few of these people? The problem is they are the generally the executives and team leaders, so where they go the minions on £70, 80, 90k will follow, and there are alot more of them. The CEO of HSBC for example relocating to Hong Kong after the 50% hike is alot more serious than just the loss of his personal tax income, it shifts the power base of the organisation away from the UK, and directly threatens future headcount at that office, at the expense of the HK office.
(18 February 2011, 10:54AM) Complain about this comment
Of course, you could argue that loosing several hundreed thousand jobs and £50bn in tax revenue is well worth it to rid ourselves of evil bankers who force us to borrow money and buy things we didn't really need, and then tried to tell us all we had to actually pay the money back. It's a moot point I suppose.
(19 February 2011, 06:19PM) Complain about this comment
Not that impressed with the argument, Merryn. The ultra-rich hardly need any new cheerleaders. And if you're looking to make the tax system more fair, what about the 60% tax rate being paid by people earning just over £100k? Isn't this the forgotten injustice - people with a marginal tax rate higher than those who already earn more?
(20 February 2011, 10:04PM) Complain about this comment
Seems so many have left us already that Geneva is full. According to the Sun Times, the canton's finance minister David Hiler says that thanks in part to the fact that both Brevan Howard and Blue Crest relocated there last year, "there's no more space."
(21 February 2011, 11:07AM) Complain about this comment
There's a herd effect too, once there are more than a few thousand city exciles out in Geneva etc, English style bars and pubs, English speaking creshes and expat schools will spring up. It's always harder for the initial pioneers. Also there's a tendancy for networks of friends to go, some years back a hole slab of people I knew ended up going to live in Singapore having seen the lifestyle one person had achieved by moving out there. The Government needs to be very very careful in it's estimation of just how many lucrative tax payers will leave, it is very much a case of killing the Goose that laid the Golden Egg. The 50% rate may yet well prove to LOOSE the Government revenue not increase it.
(21 February 2011, 01:14PM) Complain about this comment
Switzerland certainly has lower taxes than the UK but even the lowest taxed cantons are not tax free. Why don't more of these hedge fund characters move to Monaco where there is zero personal taxation?
(21 February 2011, 03:11PM) Complain about this comment
@ 6. AlexIf any of these lucrative tax payers are from the Public Sector then that does not worry me because it is, effectively, recycled taxes they are paying.And a word about Banks, The (ever-so lucrative City). How much value are they, in reality, to UKplc?They appear to be receiving (Bank employees excepted) far, far more from the Treasury than what they are contributing.Taking into account the above, it looks to me as if The (ever-so lucrative) City may well, effectively, have a work force which is partly pseudu Public Sector, contributing even more recycled taxes !!!IMHO the Banks are a NET LIABILITY to UKplc, not the Goosethat laid the Golden Egg.The Goose is all those contributing to EXPORTS (the Golden Egg)
(21 February 2011, 03:42PM) Complain about this comment
Rick, most city workers are PAYE, they pay 41% tax, or for those lucky few 51% tax. They then pay all of the other duties, taxes etc that we all do. The largest cost to a bank by far is staff salaries, almost half of which are taken by the treasury. Via the PAYE system the banks are contributing massively to the Treasury to the tune of about £50bn a year. Loosing the city might delight you, but perhaps not when your income and council tax surge to make up for the lost revenue.
(21 February 2011, 04:17PM) Complain about this comment
@ 9. AlexThanks for your challenge!You appear to be missing my point!Public Sector workers are paid exclusively from taxes, so the taxes they pay are recycled taxes, net value to the Treasury - nil.My argument concerning the Banking Sector is that since they appear to be massive net beneficiaries from the Treasury, effectively part of their workforce, at least, is pseudo Public Sector (net tax - zero, as per above para.)Another massive con!!!!!!
(21 February 2011, 04:25PM) Complain about this comment
@ 9. AlexAlso.As at least part of the Banking Sector is effectively pseudo Public Sector, it may as well be working for a Public owned Bank after the General Public have resisted the second bailing-out of the Banks!
(21 February 2011, 04:38PM) Complain about this comment
Rick, 3 banks were bailed out, I'm going to exclude LTSB because it was frog marched into a merger with one of the bailed out banks. Those 3 banks consisted of two Scottish ones, and one based in the NE. The bailouts were entirely political, and localised to Labours heartlands. Natwest wasn't bailed out in the mid nineties because it was London based. Of those bailed out only Northern Rock and RBS are majority state owned, the state owns 40% of Lloyds HBoS meaning it is still a majaority private bank. You are taking 2 banks which are now owned by the state ( for largely political reasons ) and arguing that as a result the entire industry, brokers, investment banks, other large retail banks, credit cards comapanies, insurance firms, hedge funds, should be considered to be state owned. Does that not strike you as an utterly ridiculous point of view?
(21 February 2011, 04:44PM) Complain about this comment
You also like most journalists appear to either not understand or not be interested in understanding what the liquidity scheme actually did. The Government issued bonds which for which it agreed to accept payment in the form of less liquid bonds, at a very punitive effective rate of return, out of which the treasury has done very nicely. Once the banks exchanged there holding in temporarily illiquid bonds, for liquid government bonds they were able to continue trading and raising funds. BUT the public trerasury did not per se give the banks money. In the case of RBS and HBoS the Government accepted shares in those banks as payment, where there was insufficient collateral or collateral that the Government didn't deem to be acceptable, again once the share holdings in LHBoS and RBS are sold at a tidy profit I think you'll find the cost to the treasury has been asolutely nothing, inspite of all of the media hype.
(21 February 2011, 05:33PM) Complain about this comment
@ 12. & 13. AlexBefore giving you my considered opinion on all that you have posted here, I would ask you for confirmation of the following:re. the liquidity schemeAm I right in thinking what you are effectively basically saying is:the Treasury swopped a fiver for a penny in consideration of interest on the penny?
(21 February 2011, 06:18PM) Complain about this comment
Sorry, but if the tax rate is forcing bankers out to Switzerland, good! And not only because they have destroyed more wealth than created. The huge difference in pay between the elite and the rest of us drives up the cost of living. Were fewer bankers in London, more of us would afford housing. Bonus season is back and that could stop the required correction in property prices. That is dreadful news for ordinary people. If we lose a bit in tax, we save by not needing to subsidise the poor in over-priced housing. I see no problem with this. If 50% doesn't force enough out, hike it to 60%. And enough of Ponzi banking. Move on!
(22 February 2011, 09:19AM) Complain about this comment
No Rick, I am effectively saying the treasury swapped a £10 note for £20 worth of another X asset because at that specific moment in time no one wanted that X currency even though it was and still is worth considerably more than £10. What's more the reason no one wanted X was because some incredibly stupid legislation passed by the genuis's working for the American Government and adopted by the European Government put in place a set of conditions where suddenly large chunks of a banks capital base were effectively deemed to be worthless even though those assets were paying excellent returns. The reason banks profits bounced back in such a spectacular manner is because the idiots we elect rapidly back tracked and changed the legislation. Oddly enough.....you'll hear no reference to this from Politicians either side of the Atlantic to this. I wonder why?
(22 February 2011, 10:53AM) Complain about this comment
@ 16. AlexUmm!! I'll let others be the judge of that and liquidity schemes.Insofar as your posts @ 12. & 13. are concerned (disregarding liquidity schemes):What I am saying is if any organisation (of whatever name or nature) is receiving more from the Treasury than what it is giving, then that organisation is effectively being SUBSIDISED by the Taxpayer.That being the case for a particular organisation, then it could be argued that part of the workforce of that organisation is being paid by the Taxpayer i.e. pseudo Public Sector.So, in consideration of certain current affairs:a) UK Uncut protests at 'Barclays paid £113m CT on a profit of £11.6bn' quoted as 1% Tax; but by my calculations 0.01% Tax (I am a physics graduate)b) The revelation via NEF of " 'Hidden subsidies' of £32bn for UK Banks"it would appear to me that some banks are effectively being subsidised by the Taxpayer; therefore have pseudo Public Sector workforces!!
@ 13. AlexAlso, I think you should have said:' IF and when the share holdings in LHBoS & RBS are sold at a tidy profit............'
(22 February 2011, 11:00AM) Complain about this comment
Merryn, it's not just the bankers who are leaving the UK. A good friend of mine who runs a successful engineering consultancy has decided that enough is enough and has moved his family and business from Devon to Quatar.When will they ever learn!(BTW, I moved to Switzerland in 2003.)
(22 February 2011, 12:13PM) Complain about this comment
@ 19.I wouldn't worry too much. Engineering firms will increase their profits due to not employing the likes of co-called consultants.So, effectively, these firms will have a little more capital available for re-investment towards achieving greater EXPORTS or SELF SUFFICIENCY of UKplc; every little helps!IMO consultants and other s0-called experts are largely parasites upon the truly working people; suits are synonymous with disingenuity in my book!Let them go; we're well overcrowded anyway. And when trade picks up and more workers are required, well these suited types, IMO, aren't fit for purpose anyway.
(22 February 2011, 12:18PM) Complain about this comment
Quotations:Einstein:'The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it.'Critic Al Rick:When I know I am right and it appears that everyone else is wrong, I don't know whether to call it mild despair or tremendous satisfaction.'More food for thought!!
(22 February 2011, 03:34PM) Complain about this comment
17. Rick, precisely what I am saying is that the partially state owned banks are not receiving anything from the treasury at all, quite the opposite at present. Having wrecked the balance sheets of the banks the state magnanimously offered to buy assets as basement prices, before quietly changing the legislation to reverse the damage the Governments badly thought out legislation has caused in the first place. They then had the bare faced cheek to lecture the banks about there sudden return to profitability.
(22 February 2011, 04:30PM) Complain about this comment
@ 17. AlexSo, regardless of the partially state owned Banks (which you state are not receiving anything from the Treasury at the moment - surely will have done in the recent past?):that leaves the likes of Barclays, etc which could well be contenders for being effectively partially (at least) pseudo Public Sector workforce.If that is the case, then as I have demonstrated @ 8., 10. (& 11.)the likes of Barclays, etc effectively have partially (at least) workforces paying recycled taxes into the Treasury, i.e effectively, zero tax!!!So, in that respect the (non) taxes these elements of workforce contribute to the Treasury (effectively zero) would not be missed one iota if the corresponding jobs ceased to exist in the event one or more of these Banks collapsed without further bailout!!!!Well, that's good to know!!!!!!! Thanks Alex!
(22 February 2011, 05:54PM) Complain about this comment
@ MerrynI'm thinking about 'normalcy bias'; preparation work!
(22 February 2011, 09:29PM) Complain about this comment
We can always hope that if they leave the country they'll sell their houses here, causing prices to fall, reducing the housing benefit bill, cancelling out the lost tax take.
(23 February 2011, 09:26AM) Complain about this comment
Rick, you have demonstrated absolutely nothing in any of your arguments. The 'non tax contributing' workforce you refer to adds £50bn in tax receipts annually to the UK tax take. Barclays is not in any form state owned, nor does it receive any money from the treasury. The fact that you believe it does simply demonstrates the extent to which the public including yourself have been misinformed by a media with a poor grasp of the subject on which it is reporting.
(23 February 2011, 03:38PM) Complain about this comment
@ 26. AlexThanks for your comments.Regardless of whether or not Barclays doesn't receive any money from the Treasury, if what they are contributing in CT is 0.01%, then that is absolute peanuts!!I don't pretend to know what CT rate normally is, but let's for the sake of argument say it is 20%. Then what they are not paying is (20.00 - 0.01)% = 19.99% ; i.e. approx 20%Now 20% of £11bn = £0.55bn = £550mwhich is the equivalent of 10,000 salaries @ £55k eachNot an insubstantial proportion of Barclays Capital in the UK, I doubt!!So, effectively and assuming the figures above are correct (the maths is) the taxpayer is paying > £0.5 bn of Barclays payroll!!!Do you disagree with that?So, which Banks are receiving the 'hidden subsidies' of £32.5bn?
(23 February 2011, 04:13PM) Complain about this comment
More Quotations:Einstein:'No problem can be solved from the same level of consciousness as that which created it'Critic Al Rick:''Those well endowed with common sense are astute and instinctive perceivers of reality of whatever nature'Food for thought!!!
(24 February 2011, 01:57PM) Complain about this comment
I am informed the following:'According to the BoE, the banks benefit from our taxes and the subsidy afforded them by the UK Govt is to the tune of £100bn every year.'By my calculations (and I have a Grade 'A ' in Pure Mathematics at 'A' Level GCE), £100bn equates to: one million salaries at £100kConclusion; it wouldn't surprise me if the WHOLE of the Investment Banking Sector of 'The (ever so lucrative) City' was effectively Pseudo Public Sector; and some!!!!If that be the case, then the effective tax contribution to the Treasury by the workforce of that entire Investment Banking Centre would be precisely: ZERO!!!!!!!
(24 February 2011, 02:00PM) Complain about this comment
QUOTATIONS:Einstein:'No problem can be solved from the same level of consciousness as that which created it'Critic Al Rick:An academic genius is a highly intelligent 'practical moron''It'll take a common sense genius to sort all of this 'Mess' out.
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